Partnership Deed Format
A partnership deed format covering capital, profit sharing, partner remuneration, banking, retirement and dissolution.
A partnership can legally exist on a handshake — which is exactly why partnerships fail messily. The deed is where the real questions get answered in advance: who brought what capital, how profits split, who signs the cheques, what happens when a partner wants out, and how disputes get resolved without destroying the business.
The format below records the clauses a working partnership needs, including the two the Income-tax Act cares about: interest on capital and remuneration to working partners, which are deductible to the firm only within statutory limits and only if the deed provides for them. Execute on stamp paper, and consider registering with the Registrar of Firms — an unregistered firm cannot sue third parties.
When to use this format
- Starting a business with one or more partners and recording each partner's rights before money flows
- Formalising an existing informal partnership so banking, PAN and registrations can proceed
- Rewriting terms when a partner joins or exits, or when profit ratios change
- Providing for interest on capital and working-partner remuneration so the firm can claim them as deductions
Key clauses and what they do
- Firm name & business
- Fixes the firm's name, principal place and the business it will carry on.
- Capital contribution
- Records each partner's capital and provides for interest within Income-tax Act limits.
- Profit & loss sharing
- The ratio in which profits and losses divide — the deed's most litigated number.
- Working-partner remuneration
- Authorises salary to active partners within Section 40(b) limits so it stays deductible.
- Banking & authority
- States who operates the accounts and caps what a partner can commit alone.
- Books & inspection
- Requires proper accounts, an annual closing date and every partner's right to inspect.
- Admission, retirement & death
- Keeps the firm alive when partners change, with the outgoing account settled.
- Dissolution & arbitration
- Provides an orderly wind-up route and sends disputes to arbitration first.
The format
Replace every [BRACKETED] detail with your own before use.
DEED OF PARTNERSHIP
This Deed of Partnership is made at [CITY] on this [DAY] day of
[MONTH], [YEAR], BY AND BETWEEN:
1. [FULL NAME OF FIRST PARTNER], son/daughter of [NAME], residing
at [ADDRESS], PAN [PAN] (the "First Partner");
2. [FULL NAME OF SECOND PARTNER], son/daughter of [NAME], residing
at [ADDRESS], PAN [PAN] (the "Second Partner");
[ADD FURTHER PARTNERS AS REQUIRED]
(each a "Partner" and together the "Partners").
WHEREAS the Partners have mutually agreed to carry on business in
partnership and to record the terms in writing.
NOW THIS DEED WITNESSETH AS FOLLOWS:
1. NAME AND PLACE OF BUSINESS
The partnership shall be carried on under the name and style of
M/s [FIRM NAME], with its principal place of business at
[ADDRESS], and at such other places as the Partners may agree.
2. NATURE OF BUSINESS
The firm shall carry on the business of [DESCRIBE THE BUSINESS],
and such other business as the Partners may mutually agree upon.
3. COMMENCEMENT AND DURATION
The partnership shall commence on [DATE] and shall be a
partnership at will [OR: for a fixed term of [N] years].
4. CAPITAL AND INTEREST
The initial capital of the firm shall be Rs. [AMOUNT]/-,
contributed as follows: First Partner Rs. [AMOUNT]; Second
Partner Rs. [AMOUNT]. Further capital, if required, shall be
brought in the profit-sharing ratio or as mutually agreed.
Interest at [RATE]% per annum (not exceeding the rate allowable
under the Income-tax Act, 1961) shall be payable on each
Partner's capital standing to their credit.
5. PROFIT AND LOSS SHARING
The net profits and losses of the firm shall be divided between
the Partners as follows:
First Partner — [ ]% Second Partner — [ ]%
6. REMUNERATION TO WORKING PARTNERS
[NAME(S) OF WORKING PARTNER(S)] shall be working partner(s)
actively engaged in the conduct of the firm's business and shall
be entitled to remuneration as mutually decided from time to
time, within the limits prescribed under Section 40(b) of the
Income-tax Act, 1961.
7. BANK ACCOUNTS
The firm's bank account(s) shall be opened in the name of the
firm and operated by [PARTNER NAME(S)], [JOINTLY / SEVERALLY].
8. BOOKS OF ACCOUNT
Proper books of account shall be maintained at the principal
place of business, closed as on 31st March each year, and shall
at all times be open to inspection by every Partner.
9. DUTIES OF PARTNERS
Every Partner shall be just and faithful to the others, devote
due attention to the firm's business, and render true accounts
and full information of all things affecting the firm.
10. RESTRICTIONS
No Partner shall, without the written consent of the other(s),
lend money of the firm or extend credit beyond Rs. [LIMIT],
borrow in the firm's name, or compromise or release any claim
of the firm.
11. ADMISSION, RETIREMENT AND DEATH
A new partner may be admitted only with the consent of all
Partners. A Partner may retire by giving [N] months' written
notice. The death or retirement of a Partner shall not dissolve
the firm as to the remaining Partners, who may continue the
business after settling the outgoing Partner's (or their legal
heirs') account.
12. DISSOLUTION
The firm may be dissolved by mutual consent of all Partners,
whereupon its assets and liabilities shall be realised and
settled in accordance with the Indian Partnership Act, 1932.
13. ARBITRATION
Any dispute between the Partners touching the business, this
Deed or its interpretation shall be referred to arbitration
under the Arbitration and Conciliation Act, 1996. The seat of
arbitration shall be [CITY].
IN WITNESS WHEREOF the Partners have signed this Deed on the day,
month and year first above written.
FIRST PARTNER Signature: ______________ Name: [NAME]
SECOND PARTNER Signature: ______________ Name: [NAME]
WITNESSES
1. Name: ______________ Address: ______________ Signature: _________
2. Name: ______________ Address: ______________ Signature: _________
[To be executed on non-judicial stamp paper of the value applicable
in the state. Registration with the Registrar of Firms is optional
but recommended — an unregistered firm cannot sue third parties to
enforce its contractual rights.]General format for reference — get it professionally drafted for your specific case.
Stamp duty on a partnership deed varies by state and by capital; interest and remuneration clauses must track the Income-tax Act limits in force for the firm to claim the deduction. Have the final deed vetted before execution and PAN/registration applications.
Need this drafted for your exact situation?
A practising advocate drafts the document around your facts, your state's stamp and registration rules, and the clauses that actually protect you — with execution guidance included.
Frequently asked questions
Is registration of the partnership deed compulsory?
No — a partnership is valid without registration with the Registrar of Firms. But an unregistered firm cannot sue third parties (or its own partners) to enforce contractual rights, which is why registration is strongly recommended for any firm that gives credit.
Why does the deed mention Section 40(b) of the Income-tax Act?
Interest on partners' capital and remuneration to working partners are deductible in the firm's hands only if the deed authorises them, and only within statutory limits. A deed silent on these forfeits the deduction for those payments.
What is a 'partnership at will'?
A partnership with no fixed duration — any partner can dissolve it by notice to the others. If you want stability, fix a term or require a notice period for retirement, as this format provides.
Partnership firm or LLP — which should we choose?
An LLP gives limited liability and a separate legal identity at the cost of MCA compliance (annual filings). A traditional partnership is simpler and cheaper to run but partners carry unlimited personal liability. Many small firms start as partnerships and convert when scale justifies it.
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